09
Aug
12

anchoring effects in the law

I’m working my way through Daniel Kahnemann’s book, Thinking, Fast and Slow, in which he sums up decades of his research on decision making. There are a bunch of examples in this book, and I like it because it has confirmed for me a division that I have always believed to exist, the division between deliberation and intuition. That is not, technically, the division that Kahnemann talks about, but it’s close enough. The point is that we have two ways of answering questions, one which is fast, effortless, and potentially very inaccurate, and a slower more effortful process that I think is fair to term “rational” because we are capable of entertaining deductive arguments within it.

I have to review the book before I can make any bigger points, but here is a smaller one.

Kahnemann notes that capping damage awards in certain types of lawsuits may have an anchoring effect. In other words, imposing a cap of $100,000  on damages may prevent people from imposing $120,000 in damages, but it may also move people closer to the anchored amount. In other words, the average juror has no idea how much damages will compensate for an acid spill of some magnitude or for damage to someone’s health in a botched surgery and so jurors will INVOLUNTARILY (confirmed in numerous experiments) latch on to the only number available — the anchor number and make damages closer to that number.

Absent a damage limitation amount, the jury may award $50,000 in damage, but if they are told the limit is $100,000 the same jury is much more likely to move to something higher and closer to the anchor, like $80,000.

Kahnemann goes on to make the smart point that big companies likely favor such caps for two reasons. First, it means that damages can’t get too onerous, but it also means that smaller competitors might face damages that are close to the damage limit and so threaten their survival.

What this suggests to me is that juries should not be told damage limitations up front. Rather, they should be allowed to pick a damage number. If the number is too high, they should be told that they must go lower. However, at no point should they be told the damage limitation number.

All of this course would be premised on the results of studies looking at whether the jury awards tend to over or undershoot the true economic cost of some damage (if it’s meaningful to measure “true” economic cost).

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